This is not the end of the bloodletting for British Airways, the airline which still tries to fly the flag for Britain - but without much of a flourish. Compared with other scheduled carriers, notably the Americans, it still possesses a certain amount of style.

The many United States citizens who have been using BA since September 11 have testified to this, saying they would rather travel by BA because of its excellent safety record.

Regrettably, BA's safety record is only part of the story. The airline has been buffeted by turbulence for some time. Competition from the low-cost carriers is a case in point. BA's geographical position on the edge of mainland Europe, with most destinations less than two hours away, has made it an easy prey for the likes of Ryanair, EasyJet and Go, its former subsidiary which it sold off for £100m less than a year ago. Although it says that it could not have two airlines competing on similar routes, it must now be kicking itself that it adopted that course of action.

The terrorist attacks on September 11 amounted to a significant setback for the airline industry, but the gloom which immediately descended is slowly beginning to lift. Customers, even on the expensive north Atlantic routes, are slowly returning. So long as there are no further disasters - which would finally shatter public confidence - analysts say that by the end of the year, the industry will have returned to some degree of normality.

The tragedy for BA is that it did nothing to act on the warning signs that were flickering well before September 11. The company has been overstaffed for some years, stretching back to the days when Bob Ayling was in charge.

Yet Mr Ayling and his successor, Rod Eddington, allowed the airline to grow to around 62,000 employees instead of embarking on a policy of voluntary redundancies. These belated draconian measures are designed to reduce staff numbers to 43,700 by March 2004, but will that be achieved?

Mr Eddington said last night that of the 7,200 voluntary redundancies announced after September 11, 6,000 had already gone. The remaining 1,000 are supposed to leave by the end of March, but some members of staff question whether this will be achieved, suggesting that only 5,000 have been tempted to leave.

Mr Eddington appeared to confirm that BA may not be able to agree redundancy terms with all 7,200 staff by the end of March. The point at issue is that it is becoming increasingly difficult for BA to press for staff to leave voluntarily. Over the past few months, BA's rumour machine had put the the redundancy figure as high as 10,000.

In the event, the axe was not so sharp. But this is no sop to the airline's staff, who reject Mr Eddington's protestations that the £200m set aside to finance the redundancies will be enough.

Most union leaders insist that yesterday's announcement is not the end of the story, and that the company will have to impose further cuts because it will not get the response for which it is looking.

BA's action may look tough, but it was forced on the company. It had to address high costs and a huge imbalance in supply and demand for its services. The stock market's reaction was negative when 6% was knocked off its share price; few insiders thought that BA's plans to save £650m a year were adequate.

For the first time, BA is starting to emulate the low-cost carriers. Mr Eddington has rejected the idea of setting one up - and to do so would have been to admit that he was wrong to have sold Go.

But slowly the shape of a low-cost service provider is emerging from the shadows. BA has decided to use the Boeing 737 - the workhorse of the Ryanairs and the EasyJets - as the linchpin of its short-haul services from Gatwick.

To hear Mr Eddington yesterday was like listening to the tape of interviews given six years ago by Stelios Haji-Ioannou, the Greek boss of EasyJet. BA will attempt to deliver a glancing blow even if it cannot meet the no-frills airlines head on.

Customers will be able to surf the net for lowest available prices, but BA will continue to place an emphasis on quality which it says marks it out above the low-cost carriers. It will not dispense with food on board. That will still be available, "but we want to discover if passengers prefer sandwiches or salads".

Above all, BA needs to find a new strategy. Having rejected a compromise with the US aviation authorities on a merger with American Airlines, Mr Eddington cannot stay in his tent and hope that a company which is losing £2m a day can automatically move to sunnier uplands. His best bet must surely be an alliance with another European carrier. That European carrier can really only be Holland's KLM, although national sensitivities have so far made it an impossible dream.

BA cannot afford to stand still or it will wither. Mr Ayling's original decision, subsequently backed by Mr Eddington, to encourage premier passengers to cross the north Atlantic - to the exclusion of economy flyers - now appears seriously flawed. Mr Eddington's reputation within BA is very good. Almost two years since he replaced the ousted Mr Ayling, he is still respected by staff in a manner to which Mr Ayling could not aspire. But the management structure remains mainly unaltered, and Mr Eddington's position will be increasingly questioned over the next 12 months if he fails to start turning around the airline.

He faces a hurculean task, which would at least be partially eased if Heathrow's delayed Terminal 5 project was started. That delay has so far cost BAA, the airports operator, millions of pounds. With so many services returning to Heathrow in the wake of the withdrawal from Gatwick, a government decision to sanction a third runway at Heathrow would breathe new life into BA and other UK carriers. But for the moment, that would be one controversial decision too many. Special report on airlines in crisis at www.guardian.co.uk/airlines

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